An explicit fee for day-to-day will result only in extra profits for banks,
and must be avoided, writes Dan Hyde

In essence, banking is an exchange of value like any other. We deposit our money for safekeeping. In return, the bank is free to direct the cash towards its own purposes - so long as it promises to hand it back on demand.

This implicit agreement has been in place since the dawn of modern banking in Renaissance Italy. Take the Medici family, the most powerful in 15th century Florence and regarded as a pioneer of double-entry book-keeping, neatly recording customers' debits and credits in one ledger.

The Medici Bank, founded in 1397, held deposits and made loans to royal families, the Vatican and wealthy Europeans. Despite a church ban on charging interest, or usury, the family became one of the wealthiest on the Continent, wielding influence so great that four members became popes in Rome.

The Medicis made profits in other ways. One was lending in one currency and collecting debt in another. They also traded with merchants, such as wool farmers, using their clout to secure advantageous prices.

Little has changed in 500 years: today, Lloyds, RBS, Barclays, HSBC and the rest still collect deposits from some customers and seek to use that money to gain a profit from others. The relationship is still tilted in favour of these guardians of assets; if anything, banks have become more proficient than their Italian forefathers. Barclays, as an arbitrary example, made £1.2bn in profit from high street customers last year - or £3.3m a day. This comes largely from lending at rates of interest which may be more or less keenly priced.

So you would be forgiven for thinking that banks might distribute a few more gestures of thanks to loyal customers. Perhaps better interest rates, or improved service? In fact, we are heading in quite the opposite direction.

It found that the "big four" of Lloyds, RBS, Barclays and HSBC still control 77pc of the current account market. Its report coincided with statistics showing just 1.2pc of banking customers, or 593,000 people, switched current accounts in the six months to June. This is widely regarded as pathetically few, and forms a backbone of the argument for a full-blown regulatory inquiry.

One of the causes of the malaise, the regulator said, was "free" banking. In its report, it claimed that "cross-subsidy" in the current account market was "distortive of competition". In plain English: customers who pay overdraft charges cover the cost of providing banking for the more prudent. Too many customers who fall foul of the way their account charges are structured make this injustice worse.

A report by consumer group Which?, published yesterday, found that someone £31 overdrawn for 17 days and who tried 12 times to make payments would be charged £150 on the Co-op's standard current account but just 25p on its Smile current account.

The chorus of voices arguing for an end to "free" banking is getting louder. A number of politicians and executives at Virgin Money and RBS have also expressed sympathy. Their argument, like the regulator's, hinges on the belief that an explicit fee would reduce the temptation to squeeze customers and promote a fairer battle for custom.

But this theory, which is tied to an obsession with account switching numbers, is worryingly misguided. It ignores the implicit exchange of value, which already yields giant profits for banks.

And it fails to understand what we crave as depositors. Most people have little desire for unnecessary bells and whistles on current accounts, such as in-credit interest or travel insurance. They just want simple service on which they can rely, from a bank they can trust to keep their cash safe. In reality, most people rarely change banks because they are reasonably satisfied. An explicit fee will result only in extra profits for banks, and must be avoided.